Where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing. It in every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.
Appellant director brought action against respondent entertainment studio for tortious wrongful discharge in violation of the public policy against sex discrimination, breach of contract, and fraud. Summary judgment was granted in favor of respondent, and appellant sought review. In reversing the decision, the court held that a triable issue existed as to whether respondent breached its contract with appellant by failing to evaluate appellant's proposals on their merits.
Did respondent act in bad faith and in effect, breached its contract with apellant?
If respondent acted in bad faith by categorically rejecting appellant's work and refusing to work with her, irrespective of the merits of her proposals, such conduct was not beyond the reach of the law. The implied covenant of good faith and fair dealing obligated respondent to exercise its discretion honestly and in good faith. Testimony indicated that respondent expressed an absolute unwillingness to work with appellant, it could have reasonably been inferred that respondent never intended to give appellant's proposals a good faith evaluation. Respondent's payment of the guaranteed compensation under the agreement did not establish that respondent fulfilled its contractual obligation.